ADDRESSING CHALLENGES TO SECURE THE FUTURE
HIGHLIGHTS OF FY2017
o Adjusted EBITDA from continuing operations rises 0.3% to $474.4
million
o Group net profit from continuing operations rose 186.8% to $168.9
million from $58.9 million. The uplift was due to the $64 million impairment
of the Gas Trading division in the prior year; growth in capital
contributions; lower interest costs; and a one-off tax gain of $15 million
following the Court of Appeal ruling in Vector''s favour over the tax
treatment of the sale of rights to use our Penrose to Hobson Street tunnel.
Overall group net profit of $168.9 million was down 38.4% on the prior year
result, which was boosted by the $164 million gain on sale of Vector Gas,
offset by the impairment to Gas Trading
o Lost Time Injury Frequency Rate decreased by 15%
o Received an Edison Electric Institute Asia-Oceania Index Award for
superior and sustained financial performance
o Vector OnGas won the "WorkSafe New Zealand Best Initiative to Address
a Work-Related Health Risk Award" at the New Zealand Workplace Health and
Safety Awards
o Vector was shortlisted for an "Innovation and Industry Leadership"
award at the Responsible Investor Awards Europe
o Entered into multimillion dollar partnership with Auckland Council to
produce a series of Vector-funded projects, including the Energy Efficient
Communities Project, with the support of Entrust and lighting up the Auckland
Harbour Bridge
o Acquired E-Co Products Group (which trades as HRV and EES) and
PowerSmart as part of delivering on our vision to create a new energy future
o Won the contract for a 5MW battery solution in Australia''s Northern
Territory
o Installed more than 24,200 smart meters in Australia and almost
145,000 in New Zealand
o Identified seven United Nations Sustainable Development Goals (SDGs)
that we will actively pursue
o Launched Electric Vehicle (EV) app to make it easy to find EV
chargers nationwide
o Full year dividend increases for the 11th consecutive year to 16.0
cents per share after fully-imputed final dividend of 8.0 cents per share is
declared. The record date for entitlements is 8 September 2017 and the
payment date is 15 September 2017
o Vector expects adjusted EBITDA for the year to 30 June 2018 to be at
or around the FY17 result
Vector today reports adjusted EBITDA of $474.4 million, at the top end of
market guidance, as it continues to build its credentials as an innovative,
technology-led and sustainability-focused organisation. As a result, for the
11th consecutive year, Vector is delivering dividend growth, reaching a full
year dividend of 16.0 cents per share.
Vector has continued to acquire new businesses, adopt new technologies,
expand into new markets, and embrace sustainability. In doing so, Vector is
demonstrating its commitment to not simply achieving growth, but delivering
it by offering customers choice and being unafraid to challenge traditional
models.
Group net profit from continuing operations rose 186.8% to $168.9 million
from $58.9 million. The uplift was due to the $64 million impairment of the
Gas Trading division in the prior year; growth in capital contributions;
lower interest costs; and a one-off tax gain of $15 million following the
Court of Appeal ruling in Vector''s favour over the tax treatment of the sale
of rights to use our Penrose to Hobson Street tunnel. Overall group net
profit of $168.9 million was down 38.4% on the prior year result, which was
boosted by the $164 million gain on sale of Vector Gas, offset by the
impairment to Gas Trading.
Vector''s balance sheet remains strong, with gearing as at 30 June 2017 at
47.1%, up from 43.7% a year ago and 43.9% at 31 December 2016. The $960
million proceeds from the sale of Vector Gas were initially applied to debt
repayment, and are now being redeployed to support growth in our Auckland
networks and across our unregulated portfolio.
Capital expenditure (capex) rose 13.9% to $367.4 million from $322.6 million,
driven by growth in Auckland, metering and expenditure associated with the
Bottle Swap plant in South Auckland. Net of contributions, capex rose 11.9%
to $305.2 million. Capex for the regulated business rose 4.8% to $210.6
million from $201.0 million. Capex for the unregulated businesses and
corporate rose 28.9% to $156.8 million from $121.6 million.
Vector Chairman Michael Stiassny said that while the fundamentals of Vector''s
Auckland energy networks remain strong, the growth in Auckland''s population
is not expected to translate into growth in regulated earnings for the next
two to three years. That means Vector has to continue to look to other
sources to generate revenue to plug this gap.
"Vector is a business under pressure through a combination of consumer
trends, a low interest rate environment and regulatory settings. The downward
movements in our regulated networks'' financial results may be small, but they
are noticeable: electricity connections may be up, but throughput is down;
gas volumes are up, but prices are about to be reset down.
Despite net investment of over $700 million into our regulated networks over
the past five years, our regulated adjusted EBITDA remains $30 million below
what it was four years ago.
"Don''t make the mistake of dismissing these as one-off anomalies; they are
trends. Vector''s performance is - and will continue to be - impacted by
changing energy consumption patterns. There is no room for complacency - the
future is here.
"... So when Vector talks about embracing disruptive technologies or our
commitment to the United Nations Sustainable Development Goals, we are not
merely paying lip service to lofty ideals or indulging in green washing -
these are essential to our very survival. Long-term dividend growth is
untenable without a radically different business paradigm.
"Therefore, innovative, sustainable and customer-focused initiatives are at
the heart of our strategy for one reason only, they make good business
sense," he said.
RESULTS SUMMARY
Twelve months ended 30 June 2017 $m 2016 $m Change %
Revenue 1,226.7 1,144.6 7.2
Adjusted EBITDA 474.4 473.0 0.3
Net Profit from continuing operations 168.9 58.9 186.8
Group Net Profit 168.9 274.4 (38.4)
Operating cash flow*
335.7 352.1 (4.7)
* Prior year includes discontinued operations
Vector Group Chief Executive Simon Mackenzie said that Vector''s pleasing
financial result is testimony to the hard work of all the teams across all
businesses that make up Vector.
"Winning the Edison Electric Institute (EEI) award for best performing
utility in Asia-Oceania shows that we are a top performer and I wish to take
this opportunity to thank everyone at Vector for all you''ve done to make this
win possible".
"From the battery contract we won in Alice Springs to the successful
installation of our smart meters in Australia, we''ve shown that our skills
and solutions are not only internationally competitive but also timely as
countries grapple with the challenges of rethinking their energy mix,
decarbonising their economies and finding new ways to give consumers the
control they now expect.
"Vector''s deliberate strategy to innovate with technology has seen us acquire
businesses like PowerSmart with its proven ability to deliver innovative and
economic commercial solar/battery solutions and E-Co Products Group which,
through its HRV and EES brands, will help us deliver healthy and energy
efficient solutions direct to consumers'' homes." Vector is also partnering
with mPrest and becoming a reseller of their revolutionary network management
technology across Australasia.
Vector''s commitment to meet challenges head on has seen us work with
world-class innovators like Tesla, LG Chem, and mPrest to take the most
exciting global thinking we can find and apply it, in lateral ways, to propel
us forward. It has motivated us to introduce changes, big and small, right
across our business--from app improvements to our vehicle-to-grid (V2G)
initiative to mobile batteries--that will improve the lives of our customers
at work, at home and in between.
"The awards we''ve won this year are indicative of the high standards we hold
ourselves to. Initiatives like working with lines that are not energised
where possible, and the ingenious solution that our OnGas team introduced to
make a repetitive task safer and remove the danger of strain injuries show
that we are unafraid to step up if we believe there are better and safer ways
for things to be done.
"We''re determined to enable customers to have energy choices, and that''s not
something that others in the sector find easy. It also challenges regulators
and policy makers because it requires rethinking parameters at the speed at
which technology now moves. We have no problem with debate over ways forward,
as long as the issues being raised are legitimate concerns.
"As a business, we are determined to put customers first and to strive to
make best use of our capital over the longer term across both our regulated
and unregulated businesses. The search for sustainable answers isn''t always
easy, but when we get it right--and we have done that many times this
year--it''s immensely satisfying," he said.
SEGMENT RESULTS
Twelve months ended 30 June
2017 $m 2016 $m Change %
Technology
Revenue 214.0 180.1 18.8
Adjusted EBITDA 122.5 113.5 7.9
Gas Trading
Revenue 281.8 277.1 1.7
Adjusted EBITDA 36.9 40.6 (9.1)
Regulated Networks
Revenue 741.9 726.2 2.2
Adjusted EBITDA 361.2 368.5 (2.0)
Corporate
Revenue 4.8 2.1 128.6
Adjusted EBITDA (46.2) (49.6) 6.9
Note: Revenue includes capital contributions
UNREGULATED BUSINESS
Technology
Technology division revenue rose 18.8% to $214.0 million from $180.1 million
a year earlier, driven largely by increased deployment of smart meters in New
Zealand and Australia and the contribution of E-Co Products Group and
PowerSmart from 1 April 2017. Technology adjusted EBITDA rose 7.9% to $122.5
million from $113.5 million, with gains from the smart meter roll-out and
acquisitions diluted by continued business development expenditure associated
with establishing the new energy solutions and Australian metering
operations.
During the period we installed almost 145,000 advanced meters in New Zealand
and more than 24,200 advanced meters in Australia. Our smart meter base has
now grown 13.7% to 1.28 million (including 102,808 meters which are managed,
but not owned, by Vector) from 1.13 million the year before. Vector is now
reaching the end of its smart meter roll-out in New Zealand, and we are
targeting a reduced deployment of around 80,000 to 100,000 meters over
FY2018. After that, the focus in New Zealand will shift to managing the
existing electricity meter fleet and installing new and replacement meters as
required.
We are targeting Australia to deliver the next phase of growth for the
metering business. The Power of Choice reforms take effect from 1 December
2017, at which point metering will become competitive across New South Wales,
Queensland and South Australia. Vector is currently involved in competitive
procurement processes with major Australian retailers with a view to securing
contracts for deployment from 1 December 2017.
Meanwhile, Vector Communications has delivered an improved result. The
company continues to provide high-end telecommunications solutions to
customers.
Our Technology division also includes Vector''s nascent new energy solutions
business. The business development expenditure we have committed in this area
over the past two years is now starting to bear fruit, as evidenced by Vector
winning a multimillion-dollar contract to supply the Northern Territory with
a 5MW grid-tied battery storage solution. Vector will be responsible for the
design, engineering, construction, and installation of the system and once
commissioned, we will also be responsible for ongoing maintenance. Another
example is our pioneering work with Dominion Salt where we integrated a Tesla
Powerpack with its 660 kW wind turbine at Lake Grassmere to deliver around
75% of the site''s energy needs.
Our new energy solutions business was strengthened this year by the
acquisition of E-Co Products Group and PowerSmart. Together these businesses
contributed $0.9 million in EBITDA for the period 1 April to 30 June 2017.
Gas Trading
Revenue for the Gas Trading division increased 1.7 % to $281.8 million from
$277.1 million a year earlier on the back of higher natural gas volumes, up
6.6% to 17.8 PJ from 16.7 PJ in the prior year. Volumes from the Kapuni
field, however, continued to decline, down 23% to 8.4 PJ.
Despite an increase in volumes, our natural gas operations were impacted by
lower margins as a result of strong competition in the market and by lower
production and processing fees at the Kapuni Gas Treatment Plant.
Vector''s LPG operations continue to occupy a strong market position. Bottle
Swap nine kilogram volumes were up 9.9% to 604,391 bottles from 549,998 a
year earlier. The new bottling facility in South Auckland is expected to be
operational for our summer peak this year and will help drive efficiencies
and enable further growth in our Bottle Swap operations. LPG tolling volumes
were down 2.1% to 169,046 tonnes from 172,695 tonnes a year earlier driven by
lower export volumes as lower international prices for LPG made exports less
attractive.
Gas Trading adjusted EBITDA fell 9.1% to $36.9 million from $40.6 million a
year earlier. This result includes a one-off insurance settlement of $5.3m
in relation to damage to the Liquigas facilities at Lyttelton in the 2012
earthquake.
Vector received an arbitral award in its favour regarding the price and terms
for the next tranche of Kapuni gas which we have been taking since 2013. On
31 May 2017, Vector announced that the High Court had denied Todd and Shell a
right to appeal this judgment. They have now applied to have aspects of the
High Court''s judgment recalled and, alternatively, sought leave to appeal
this decision to the Court of Appeal. We will oppose this application.
During the year, Shell and Todd agreed a transaction that saw Todd assume
100% ownership and operation of the Kapuni field on 1 August 2017.
REGULATED BUSINESSES
Revenue for our Regulated Networks business increased 2.2% to $741.9 million
from $726.2 million the year before. This was largely driven by an increase
in capital contributions--up 25.2% to $61.2 million--reflecting continued
connection growth and significant infrastructure development taking place
across Auckland.
Excluding capital contributions, revenue was effectively flat, with growth in
connections and gas volumes largely offset by declining electricity
consumption. New electricity connections rose 7.2% to 9,138 from 8,526. New
gas connections rose 5.8% to 3,515 from 3,323. Total connections to the
electricity network stood at 555,100 at year end, up 0.9% from 550,053 a year
ago. Total gas connections were 106,670, up 2.3% from 104,322 a year ago.
Despite the increase in connections, volumes transported across the
electricity network fell 0.5% to 8,332 GWh from 8,372 GWh due to ongoing
declines in household electricity consumption and the partial closure of a
large commercial customer. Auckland gas distribution network volumes were
14.3 PJ, up 2.9% from 13.9 PJ the previous year, due largely to connection
growth.
Adjusted EBITDA (which excludes capital contributions) fell 2.0% on the prior
year to $361.2 million from $368.5 million on the back of flat revenue,
higher maintenance costs and one-off items.
Our Regulated Asset Base (RAB) now stands at $3.3 billion. The electricity
RAB amounts to $2.9 billion and the Auckland gas distribution RAB is around
$390 million.
In May 2017, the Commerce Commission released its final decision on the
default price-quality path for the gas distribution business. This decision
is the primary reason average gas distribution prices will reduce by around
14% from 1 October 2017. The impact of this on next year''s EBITDA result is
expected to be around $6 million. The main drivers of the decrease in our
regulated revenue allowance set by the Commerce Commission were lower
interest rates, lower operating expenditure allowances and tightening
regulatory parameters, with a move to P67 WACC (from P75) and a lower asset
beta.
In 2014-2015 the assumptions we made around customers being placed by their
electricity retailer on the most suitable lines charge plan did not
eventuate. As a result, we unintentionally earnt more than allowed by the
Commerce Commission. We''ve been working extensively with the Commerce
Commission to find the best solution for consumers, and we will return $13.9
million to Auckland consumers by reducing the amount of revenue we recover
over two regulatory years starting in April 2018. In FY18, Vector''s
electricity revenues (and EBITDA) will be $0.9 million lower than they would
otherwise have been, with the remainder of the reductions in revenues and
EBITDA to be spread across FY19 and FY20. The $13.9 million to be returned to
consumers includes accumulated interest of $3.8 million.
Meanwhile assumptions made by the Commerce Commission in setting our
regulated revenues also continue to prove challenging. In particular, errors
in the Commerce Commission''s electricity growth forecasts have contributed to
Vector under-recovering by more than $60 million over the past 5 years.
Furthermore, the regulator''s persistent over forecasting of revaluation rates
has resulted in Vector missing out on additional revenue of more than $130
million over the same period.
CAPITAL EXPENDITURE
Capital expenditure (capex) rose 13.9% to $367.4 million from $322.6 million.
Net of contributions, capex rose 11.9% to $305.2 million. The increase in
capex was driven by growth in Auckland, metering and expenditure associated
with the bottle swap plant in South Auckland. Capex for the regulated
business rose 4.8% to $210.6 million from $201.0 million. Capex for the
unregulated businesses and corporate rose 28.9% to $156.8 million from $121.6
million.
Twelve months ended 30 June
2017 $m 2016 $m Change %
Technology
Growth 92.5 82.5 12.1
Replacement 11.8 12.6 (6.3)
104.3 95.1 9.7
Gas Trading
Growth 26.3 6.9 281.2
Replacement 6.4 8.3 (22.9)
32.7 15.2 115.1
Regulated Networks
Growth 108.0 96.3 12.1
Replacement 102.6 104.7 (2.0)
210.6 201.0 4.8
Corporate
Growth 1.5 0.0 n/a
Replacement 18.3 11.3 61.9
19.8 11.3 75.2
Total Group
Growth 228.3 185.6 23.0
Replacement 139.1 137.0 1.5
367.4 322.6 13.9
Capital Contributions
Regulated Networks 61.2 48.9 25.2
Technology 1.1 0.9 2.2
62.3 49.8 25.1
Total Group Capex (net of capital contributions 305.2 272.8 11.9
For further information, please contact:
Investors Media
Dan Molloy Melanie Tuala
Chief Financial Officer External Relations
Tel: +64 9 213 5179 Mob: +64 21 518 459
Mob: +64 21 441 311
About Vector
Vector is New Zealand''s leading multi-network infrastructure company which
delivers energy and communication services to more than one million homes and
businesses across the country. Vector is listed on the New Zealand Stock
Exchange with ticker symbol VCT. Our majority shareholder, with voting
rights of 75.4%, is Entrust (formerly Auckland Energy Consumer Trust). For
further information, visit www.vector.co.nz
APPENDIX: NON-GAAP PROFIT REPORTING MEASURES
Vector''s standard profit measure prepared under New Zealand GAAP is net
profit. Vector has used non-GAAP profit measures when discussing financial
performance in this document. The directors and management believe that these
measures provide useful information as they are used internally to evaluate
performance of business units, to establish operational goals and to allocate
resources. For a more comprehensive discussion on the use of non-GAAP profit
measures, please refer to the policy ''Reporting non-GAAP profit measures''
available on our website (vector.co.nz).
Non-GAAP profit measures are not prepared in accordance with NZ IFRS (New
Zealand International Financial Reporting Standards) and are not uniformly
defined, therefore the non-GAAP profit measures reported in this document may
not be comparable with those that other companies report and should not be
viewed in isolation or considered as a substitute for measures reported by
Vector in accordance with NZ IFRS.
Definitions
EBITDA Earnings before interest, taxation, depreciation and
amortisation.
Adjusted EBITDA adjusted for fair value changes, capital
contributions, associates
EBITDA impairments and significant one-off gains, losses, revenues and/or
expenses.
Reconciliation:
Group EBITDA and adjusted EBITDA from continuing operations
Year ended 30 June 2017
$M 2016
$M
Reported net profit for the period (GAAP) 168.9 58.9
Add back: net interest costs1 137.3 168.8
Add back: tax (benefit)/expense1 34.1 44.3
Add back: depreciation and amortisation1 199.6 194.6
EBITDA 539.9 466.6
Adjusted for:
Associates (share of net (profit)/loss) 1 (1.6) (2.8)
Fair value change on financial instruments1 (1.6) (2.3)
Impairment - 61.4
Capital Contributions (62.3) (49.8)
Adjusted EBITDA 474.4 473.0
1 Extracted from audited financial statements
SEGMENT ADJUSTED EBITDA ($m) 2017 2016
Year ended 30 June Reported segment EBITDA less capital contributions
Segment adjusted EBITDA Reported segment EBITDA less capital contributions
Segment adjusted EBITDA
Technology 123.6 (1.1) 122.5 114.4 (0.9) 113.5
Gas Trading 36.9 0.0 36.9 40.6 0.0 40.6
Unregulated Segments 160.5 (1.1) 159.4 155.0 (0.9) 154.1
Regulated Networks Continuing 422.4 (61.2) 361.2 417.4 (48.9) 368.5
Regulated Networks Discontinued 0.0 0.0 0.0 79.1 (3.8) 75.3
Regulated Segments 422.4 (61.2) 361.2 496.5 (52.7) 443.8
Corporate (46.2) 0.0 (46.2) (49.6) 0.0 (49.6)
TOTAL 536.7 (62.3) 474.4 601.9 (53.6) 548.3
TOTAL - Continuing Operations Only 536.7 (62.3) 474.4 522.8
(49.8) 473.0
End CA:00306042 For:VCT Type:FLLYR Time:2017-08-24 08:31:23